In the past few weeks three of my clients have been involved in transactions where the properties did not appraise for the purchase price. In all three cases the sellers agreed to a price reduction in order for the buyers to qualify for their loans, which was an exciting benefit for the buyers.

 Because inventory is low, buyers are willing to pay more to get the house they want and sellers want to get the highest price possible. When real estate agents prepare a market analysis, we show the sellers the history of the recent closed sales, for a similar type home, in their area. This is the same data the appraisers will use during the appraisal process to prove to the lender that the home is worth the purchase price.

 When we are helping sellers determine the list price, we also review the active competition to see how their home compares to the competition that the buyers are looking at. It is not unusual to price a home 3-5% above the average closed price as the average sale price is typically 3-5% below the list price. Sometimes sellers pick their own price and they don’t care about the market data, but at least they have been educated about the appraisal process.

 It is not uncommon for the seller to pay up to 3% of the purchase price for the buyer’s closing costs, for first time home buyers. First time home buyers usually don’t have enough cash for their down payment and closing costs. Two of my transactions that didn’t appraise had 3% seller paid closing costs included. Example: purchase price $250,000, $7,500 seller paid closing costs, net purchase price to seller was $242,500. The property appraised for $248,000. The buyers could only borrow 95% of the appraised price; because it was lower than the purchase price.

 In this case the appraised price was more than the net purchase price to the seller, so you would expect the buyer to reduce the seller paid closing costs to $5,000 instead of $7,500.  But if the buyer doesn’t have the cash to make up the difference, the seller either drops the price or can cancel the purchase agreement. The problem with cancelling the purchase agreement is; there is no guarantee a future appraisal will be higher or a new offer will be better. In this situation the buyer and seller split the difference so the price was dropped to $248.000 to match the appraisal, and the seller paid closing costs were dropped to $6,000.

 Negotiations are an important part of the real estate transaction. An experienced real estate agent can help you get the best price whether you are buying or selling a home.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.